Turbulence Increasing

Turbulence in the air is increasing, and a change in flight plan isn’t the answer.

As cultural and political clashes move from the streets into the air — and onto YouTube — airlines must protect their brands and other passengers before events get out of hand. Liability is generally not an issue unless there is bodily injury, but even then it’s questionable whether an airline would be found at fault when a dispute is between two passengers.

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While incidents involving unruly passengers on airplanes have been increasing, there are no statistics kept on the types of disturbance that have occurred.

Yet, anecdotal evidence abounds. More than 2 million people have watched YouTube videos about the New York attorney who was kicked off a JetBlue flight after verbally accosting Ivanka Trump and her family.

Both supporters and critics of President Trump have been kicked off airplanes after loudly proclaiming their political views, and sometimes refusing to sit next to people who have different opinions.

It’s not just political disagreements that bedevil airlines. Some Orthodox Jewish or Muslim men have refused to sit next to women. Some Muslim passengers have been removed from planes just for speaking Arabic or been refused boarding for praying before take-off.

Some men are asked to switch their seats to avoid having them seated next to unaccompanied underage females. Some women who travel alone have been assaulted by seatmates.

“The airline is truly caught in the middle of this situation and doesn’t want to be there,” said attorney Mark Dombroff, chair of the aviation practice at Dentons law firm. “Yet, they find themselves wrapped up in this cultural tension.

“You overlay heightened awareness of terrorism and cultural sensitivity, and put that in the context of the already stressful environment of aviation and I think it ratchets up the issue on airplanes.”

Two brokers who work with the aviation industry said no insurance claims relating to political or cultural disputes have been filed, according to the claims adjusters they spoke with.

A Difficult Situation

“It’s very difficult to answer on a universal level as to what an airline can do about it,” said Rob Lawson, a partner at the Clyde & Co. law firm, who specializes in aviation. “You’re damned if you do and damned if you don’t.

“Historically, the problem with unruly passengers has been in relation to passengers who have been fueled by alcohol. That’s a very different problem than a cultural issue.”

Mark Dombroff, chair of the aviation practice, Dentons

The number of incidents on-board airlines has been increasing.

From 2007 to 2013, an analysis by the International Air Transport Association (IATA) found one unruly incident per 1,600 flights. In 2015, it increased to one incident for every 1,205 flights. Intoxication was identified in about one-quarter of the reported cases. The majority of the incidents involved verbal altercations, 11 percent involved physical aggregation or damage to the aircraft.

More than half (53 percent) of IATA members surveyed in 2015 said that the frequency of unruly passengers had increased in the past five years, and 40 percent had diverted a flight in the past 12 months due to an unruly passenger.

“The airline is truly caught in the middle of this situation and doesn’t want to be there.” —Mark Dombroff, chair of the aviation practice, Dentons

According to the FAA — which tracks domestic flights as opposed to all flights tracked by the IATA — there was one unruly passenger for every 114,500 flights.

The FAA number reflects “the lowest it has ever been since the federal government has tracked this specific unruly passenger data,” according to Airlines for America (A4A), a trade organization representing airlines.

“The world of airline travel is not easy today. … You have a mix of every conceivable personality, heritage, weight, all sitting in these tiny seats that seem to get smaller all the time,” said Bradley Meinhardt, area president and managing director-aviation, Arthur J. Gallagher & Co., a repeat Power Broker® in the aviation category. “That can be a volatile mix.”

One broker who asked not to be identified said she personally experienced a disconcerting incident on an airline when the Muslim man sitting next to her said he didn’t want to speak with her because she was not a believer. He did not ask that she be moved.

“It was a little uncomfortable,” she said. “This is definitely something that could be an issue and probably will be an issue.”

Decision-Making on the Fly

Safety will always be at the forefront of the airline cabin crew’s response.

“The safety of our passengers and crew are always our highest priority, and the crew members on board the plane are always mindful of the need to keep all passengers safe,” said Kathy Grannis Allen, managing director, airline industry public relations, communications, A4A, in an email.

For international flights, it’s more complex. In many cases, the country where a passenger leaves the plane does not have jurisdiction to prosecute if the aircraft is registered in another country, according to the IATA, which noted that the Tokyo Convention of 1963 governs offenses on flights.

The consequence is that the offenders are left unpunished, said the IATA, which noted that the high cost of extradition to the original country is likely to deter all but the most serious prosecutions.

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The IATA has worked with some countries to permit “state-of-landing jurisdiction” to permit prosecution of events that occur onboard foreign aircraft.

But more often, it’s not prosecution that’s involved but escorting offending passengers off the plane if they fail to quiet down or comply with instructions from the cabin crew.

The practice of escorting passengers off planes became a huge international controversy in April when United Airlines forcibly removed a 69-year-old physician because it needed seats to fly crew members to another city.

Cell phone videos showed what appeared to be aviation security officers banging the man’s head into an armrest and dragging him from the plane. The passenger, who suffered a concussion and broken nose, planned to sue the airline.

Once a plane is in flight, the captain is the ultimate onboard authority, said Meinhardt.

If an incident occurs in the air, the captain can decide to divert the plane to a closer landing field, where the offending passenger will be removed.

According to the IATA, the cost of a diversion could cost from $6,000 to $200,000, depending on factors such as whether fuel has to be jettisoned to comply with the aircraft’s maximum landing weight limit, landing fees, accommodation, ground-handling charges, passenger compensation and fuel uplift to complete the journey.

IATA best practices call for using de-escalation techniques with unruly passengers “and as a last resort the use of restraints,” said Jonathan Jasper, IATA cabin safety manager, in an email.

Liability Limited

Ejecting a passenger or moving — or refusing to move — passengers is unlikely to trigger an insurance claim or successful litigation by a passenger. And losses associated with diverting a plane would not lead to a successful insurance claim by an airline, either, experts said.

Lawson of Clyde & Co. said that an airline’s terms and conditions usually give it the right to move passengers, to refuse boarding and eject passengers if they behave in an unreasonable manner. Should that occur, “case law says that if you merely are upset by what an airline says to you in the course of a flight, you have no right of action.”

The same is true if a passenger upsets another passenger, he said, explaining that the Montreal Convention [a global airline treaty that establishes airline liability] has an exclusive liability code which says the airline will be liable for bodily injury caused by an accident.

“If nothing qualifies as an ‘accident’ and/or you don’t have any ‘bodily injury’ — in the sense those terms are used in the convention — then there is no basis for a carrier to be held liable,” Lawson said.

“You would not be able to claim, for example, the humiliation and vexation of being moved from your assigned seat or, for example, as a result of having to sit next to a woman on a flight — if that was contrary to your religion — because the Montreal Convention does not provide for liability in such circumstances,” he said.

What’s important, he said, is to have clear policies and procedures for how such situations should be dealt with.

“The system is all important,” he said. “If you try to deal with things ad hoc, you are opening yourself up to an unnecessary and potentially avoidable complaint.”

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Meinhardt said even though such conflicts don’t typically trigger an airline’s insurance policies, that doesn’t mean an airline wouldn’t attempt to soothe hurt feelings by offering apologies, flight vouchers or other amenities.

“I think airlines are doing a great job,” he said. “When they have bad press associated with these incidents where a passenger feels they were mistreated or had a situation that unfortunately got out of control, they are very proactive these days.

“They defuse it, accept it or immediately try to resolve it. They don’t keep quiet, but behind the scenes they move to resolve it by reaching out to the passenger.”

Dombroff added: “Airlines are in the business of passenger satisfaction and they want to protect their brand. While there probably isn’t liability, airlines have settled claims filed against them related to these types of issues to resolve the issue and remove themselves from controversy.

“So long as cultural sensitivity and political sensitivity continue as part of our lives, it will intrude into aviation. It’s inevitable,” he said. “Airlines are the ones caught in the middle. &

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

Damages wrought by the natural catastrophes of 2017 were a wake-up call for companies of every industry. No business should assume it is safe.

Of particular concern is the risk of non-physical damage business interruption, where a facility sustains minimal damage itself, but suffers a lapse in normal operations due to devastation to their immediate area. Loss of infrastructure and loss of attraction can keep customers at bay for significant lengths of time.

Traditional business interruption policies, however, only kick in when the insured entity sustains physical damage. No damage means no coverage.

Parametric policies are index-based solutions that trigger a payout as long as an event meets certain severity thresholds, without necessarily requiring the insured asset to sustain physical damage. Thresholds can refer to wind speed, earthquake magnitude, or hurricane category as measured at predetermined locations. If the parameters are met, pre-determined payouts are issued within 30 days; no need for adjusters or a lengthy claims process.

“Once a parametric policy is triggered, the insured simply has to provide a certification of loss that is equal or greater to the payout amount, usually within 12 to 24 months of the event,” said Robert Nusslein, Head Innovative Risk Solutions Americas, Swiss Re Corporate Solutions.

Over the last decade, uptake of parametric policies has grown exponentially, and the growth is not limited to any one industry. Hospitality, energy, public entities, utilities, and health care organizations have all been buying parametric coverage.

“The common theme across these disparate buyers is that they all have an unmet need,” Nusslein said.

“Many companies have very high deductibles for hurricane and earthquake coverage, from 2 to 5 percent of their total insurable value. This amounts to a very large self-insured risk. They have a need for supplemental limit to cover uninsured or underinsured exposures or to fill in deductibles.”

Recent iterations of parametric solutions that allow for more flexibility and customization are driving increased uptake of these policies as supplements to traditional business interruption coverage.

The Evolution of Parametric Solutions

First-generation parametric products debuted more than 20 years ago. Along with triggers set around event intensity, these polices also stipulated a defined geographic region in which the event must occur, usually a radius centered around the insured location.

“These are what we call ‘CAT-in-the-circle’ solutions,” Nusslein said. “They define a geographic area with a center on the latitude and longitude coordinates encompassing the insured assets. A policy trigger would require that the epicenter of an earthquake or eye of a hurricane be within that area.”

The downside of these policies is that they introduce basis risk — the risk that a sustained loss will exceed insurance recovery.

“Let’s say a policy has a payout triggered by a 6.5-magnitude earthquake with an epicenter within a 40-mile radius of the insured location. If a quake occurs within that region but is only a 6.2 in magnitude, or if it is 7.0 in magnitude but the epicenter is 41 miles away from the insured facility, there’s no cover,” Nusslein said. “The insured will likely still have damage but will recoup nothing from that policy. That’s basis risk.”

The second generation of parametric policies eliminates this gap by doing away with defined geographic regions as triggers.

“The coverages evolved to designate certain severity thresholds at specific locations, rather than within a radius. So it would not matter where the epicenter of the quake is as long as the shake intensity meets a certain level at your facility,” he said. “This is much more flexible and nimble and reduces basis risk.”

The third generation of parametric structures allows even more flexibility by creating “either/or” triggers — a design driven by the convergence of multiple factors of wind, rain and storm surge that make hurricanes so damaging.

“What made Hurricane Harvey so devastating was that in addition to being a wind event, it also created storm surge that pushed a lot of water up where the eye made landfall, which was then compounded by several feet of rainfall,” Nusslein said.

That drove exploration into the possibility of having custom triggers for each one of those factors, so even if wind speeds didn’t meet the designated threshold, a significant storm surge could still trigger the policy.

“Each evolution of parametric coverages has been driven by companies needing a way to better protect themselves from natural catastrophes. As brokers and buyers have become more sophisticated and aware of their exposure, they’ve asked for more customized solutions to meet their needs,” Nusslein said.

Skills and Strength to Address Unmet Needs

While the most common parametric covers address natural catastrophes like earthquakes and hurricanes, there is considerable interest in adapting the policies to respond to non-cat weather events like flooding, fire, snowfall, hail and temperature fluctuations.

Some solutions go beyond weather to focus on industry-specific triggers, like drops in occupancy rates or revenue per available room for hotels, decreased passenger seat miles flown for airlines, or reduced container traffic through a port resulting in tax revenue loss.

“Swiss Re Corporate Solutions is already developing products in these areas,” Nusslein said. “We listen to our broker partners and our clients to really hear what they need, and we have the intellectual curiosity to keep innovating to meet those needs.”

Swiss Re Corporate Solutions’ involvement in parametric structures goes back to their inception roughly 25 years ago, and it has remained dedicated to the space ever since, building a deep bench of atmospheric specialists, seismic specialists, geologists and data scientists.

“Our NAT CAT perils team and our ability to develop our own models around hurricane and seismic activity is second to none,” Nusslein said.

But with speed of payment a primary benefit of parametric insurance, understanding NAT CAT exposure is only half of the equation. Getting funds into the hands of policyholders quickly is where insurers really deliver value. The one-two-three punch of Harvey, Irma and Maria last year would test the mettle of any top-tier carrier.

“It was all-hands-on-deck here to make sure we could deliver on time. We had a number of claims on parametric policies, and we met the 30-day deadline for every one of them. Some payments were delivered in as few as 13 days,” Nusslein said.

“It was a testament not only to the expertise and commitment of our people, but to the strength of Swiss Re’s balance sheet and its reputation for reliability built over our 150 years in the industry.”

Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solutions. This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Swiss Re Corporate Solutions. The editorial staff of Risk & Insurance had no role in its preparation.

Swiss Re Corporate Solutions offers innovative, high-quality insurance capacity to mid-sized and large multinational corporations and public entities across the globe.